I should have realized last month, when I noticed that stream of articles about private equity and affordable housing, that some serious organizing had taken place to get their attention. Though god knows any reporter would have noticed the trend if s/he looked,it appears probable that behind that curtain were two fearless and dedicated advocacy groups, the Association of Neighborhood and Housing Development (whose director, the terrifyingly brilliant Benjamin Dulchin, was quoted by the Times) and Tenants and Neighbors, whose campaign on the subject is linked above.
I’m the opposite of surprised, of course. Social movements don’t bloom overnight, and most reporters are too deep in that signature mix of lazy, stressed and mad busy, unless organizers make us see it.
TADN’s campaign’s main page has much to offer, including a handy step-by-step explanation of the process:
1. Entrepreneur identifies a building as an “underperforming or “underutilized” asset. This means that the income that the building produces is significantly lower than it could be – because people with low and moderate incomes are living there instead of people with higher incomes, who could pay higher rent.
2. Entrepreneur obtains “equity capital” by promising other investors a high rate of return – generally 20 percent a year. Investor then obtains “leverage” by borrowing more money – six to ten times more – from banks or other lenders.
3. Entrepreneur buys the building and begins working to increase its income. Often the entrepreneur and the equity investors are willing to see income go down – or even to lose money – for a few years before it actually goes up. * In the case of a Mitchell-Lama buyout, this enables them to immediately suffer the loss of subsidies, along with huge interest payments on the borrowed money, while waiting for rental income to increase over a period of years as the original tenants move out and new tenants move in and begin paying higher rents.
4. If the entrepreneur is a private equity group, it will sell the building to a new investor after three to five years – as soon it can show that the property’s income is going up enough to justify a significantly increased price. Other entrepreneurs may prefer to sell or to continue to own and operate the building. Either way, many or most of the original tenants must be replaced with higher-income people by this point, or the investment will be judged a failure.
If the legislators roused by all this actually do something, Dulchin’s and TADN’s organizers will be the Rosa Parks of this corner of the scene. Or perhaps, even, the Bayard Rustins, given their smart use of language. I wish I’d been smart enough to come up with the term “predatory equity, ” and cheer the polite use of the term “entrepeneur.” God knows most tenants use words with far fewer syllables, and to a far more explosive effect.